Success Factors in Product Seeding: The Role of Homophily

Abstract

This study explores the profit impact of seeding programs—giving away free new products to enhance new product diffusion. We conducted extensive agent-based simulation experiments using empirical social connectivity data from five consumer social networks. The findings suggest that the effect of consumer homophily—the similarity of adjacent consumers in a social network—on the profit impact of seeding depends on the seeding target. Consumer homophily negatively affects the profit impact of seeding early adopters but it exhibits a U-shaped relationship with the profit impact of seeding social hubs and random seeding. The right side of the U-shaped curve (high homophily) reflects a higher profit impact when compared to the left side (low homophily). We integrate literature from sociology, social networks, and marketing to explain this finding. The results also suggest that seeding social hubs generates the greatest NPV (net present value), followed by seeding randomly chosen targets, and early adopters, in that order. Finally, we explore the optimal seeding size—the percentage of the market to seed—and discuss managerial implications for seeding strategies.